Econ final exam

Price fixing is illegal under Section 1 of the Sherman Act.

A) True

The demand curve of a monopolistically competitive firm is more elastic than that of a pure monopolist

A) True

The kinked-demand curve of an oligopolist is based on the assumption that:

A) competitors will follow a price cut but ignore a price increase.

A pure monopolist's demand curve is:

A) downsloping.

In long-run equilibrium, the firm shown in the diagram above will:

A) earn a normal profit.

The Clayton Act of 1914

A) outlawed price discrimination, tying contracts, intercorporate stockholding, and interlocking directorates that lessen competition.

One way the government could regulate a natural monopoly at the marginal cost level would be to:

A) subsidize the monopoly.

A pure monopolist:

A) will realize an economic profit if price exceeds ATC at the equilibrium output.

The Herfindahl index for a pure monopolist is:

B) 10,000.

A pure monopolist will maximize profits by producing at that output where price and marginal cost are equal.

B) False

The Celler-Kefauver Act outlawed interlocking directorates.

B) False

The Sherman Act declares that price discrimination, tying contracts, stock acquisitions between corporations, and interlocking directorates are illegal when their effect is to reduce competition.

B) False

The highest possible value of the herfindahl index is 1,000

B) False

What do economies of scale, the ownership of essential raw materials, and patents have in common?

B) They are all barriers to entry.

Which of the following is not a barrier to entry?

B) X-inefficiency

A profit-maximizing monopolist will set its price:

B) along the elastic portion of its demand curve.

Mutual interdependence means that each firm in oligopolistic industry:

B) considers the reactions of its rivals when it determines its price policy.

If a monopolist is producing quantity whereas marginal revenue is equal to $125 and the marginal cost is equal to $125, the monopolist should:

B) continue producing at the current price to maximize profits.

Price exceeds marginal revenue for the pure monopolist because the:

B) demand curve is downsloping.

The copper, aluminum, cement, and industrial alcohol industries are examples of:

B) homogeneous oligopoly.

Which type of merger is most likely to be the focus of antitrust law scrutiny and enforcement?

B) horizontal

In the long run a pure monopolist will maximize profits by producing that output at which marginal cost is equal to:

B) marginal revenue.

McDonald's restaurant located near high school offered a Tuesday special for high school students. If high school students showed student ID cards they would be given 50 cents off any medium combination meal. This practice is an example of::

B) price discrimination.

Nonprice competition refers to:

B) product development, advertising, and product packaging.

In an oligopolistic market:

B) products may be standardized or differentiated.

Antitrust laws have been most effective in:

B) prosecuting price fixing in business.

The Herfindahl index measures the:

B) sum of the squared values of market shares in an industry.

A merger between one firm and another firm that is its supplier is known as a:

B) vertical merger.

Assume six firms comprising an industry have market shares of 30, 30, 10, 10, 10, and 10 percent. The Herfindahl Index for this industry is:

C) 2,200.

A market is composed of five firms, and their market shares are 30 percent, 25 percent, 20 percent, 15 percent, and 10 percent. What is the Herfindahl index for the industry?

C) 2250

Refer to the above graphs. Which shows the long-run or short-run conditions for a pure monopoly earning economic profits when output is set where MC = MR?

C) 3

Which of the following is correct?

C) A purely competitive firm is a "price taker," while a monopolist is a "price maker."

The antitrust laws are enforced by the:

C) Federal Justice Department and the Federal Trade Commission.

In equilibrium which of the following conditions are common to both unregulated monopoly and to pure competition?

C) MR = MC

Pure monopoly means

C) a single firm producing a product for which there are no close substitutes.

OPEC provides an example of:

C) an international cartel.

In the 1911 Standard Oil case, the U.S. Supreme Court found Standard Oil:

C) guilty of monopolizing the petroleum industry.

Monopolistic competition is characterized by a:

C) large number of firms and low entry barriers.

Monopolistically competitive firms:

C) may realize either profits or losses in the short run, but realize normal profits in the long run.

Which market model is characterized by many firms, differentiated products, and relatively easy entry?

C) monopolistic competition

Concentration ratios measure the:

C) percentage of total sales accounted for by the four largest firms in the industry.

For a pure monopolist marginal revenue is less than price because:

C) when a monopolist lowers price to sell more output, the lower price applies to all units sold.

Refer to the above graphs. Which shows the long-run equilibrium for a typical monopolistically competitive firm?

D) 4

The government has exercised control over monopoly practices since the passage of the:

D) Sherman Antitrust Act of 1890.

Which is not true for a monopolistically competitive industry?

D) The portion of the marginal-cost curve above the average-variable-cost curve is the short-run supply curve for the firm.

The MR = MC rule:

D) applies both to pure monopoly and pure competition.

When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise restrict competition, they are practicing the strategy of:

D) collusion.

Interlocking directorates are:

D) illegal under provisions of the Clayton Act of 1914.

The supply curve for a monopolist is:

D) nonexistent.

Monopolistically competitive firms have a:

D) relative elastic demand curve.